Plaintiffs
brought the diversity action for breach of contract against
Defendant seeking specific performance in the form of an
order conveying a 27% interest in Defendant to Plaintiff. The
case is before court on cross motions for summary judgment.
For the reasons that follow, Plaintiffs' motion will be
denied, and Defendant's motion will be granted but only
in part.

BACKGROUND

This
case is the second iteration of a dispute between the
Plaintiffs, a group of entities controlled by Ronald Van den
Heuvel, and Tak Investments, LLC, a Delaware company. The
dispute arises out of Tak's purchase of an Oconto Falls,
Wisconsin, paper mill from the Plaintiffs. In a previous
action, Case No. 12-C-1305, the Plaintiffs (also known as the
OFTI Group) sought to enforce a provision in the parties'
agreement that would require the Defendant to turn over
“an undiluted 27% ownership interest of the highest
class in [Tak] Investments” because the Plaintiffs had
deemed four promissory notes cancelled. Upon motions for
summary judgment, this court found for the Defendant on the
ground that one of the four notes had been assigned to
another party, thus precluding the ability of the Plaintiffs
to deem all four notes cancelled. As such, the Plaintiffs had
not fulfilled a condition precedent to enforcing the
provision of the contract upon which they relied. However,
the court noted that because the assignee “could
reassign the fourth note back to OFTI [i.e., the Plaintiffs]
there is nothing in the record to suggest that OFTI is
permanently foreclosed from cancelling all four notes and
thereby fulfilling the condition precedent.” (No.
12-C-1305, ECF No. 42 at 5.)

This is
exactly what has now happened. The Plaintiffs, having
received an assignment of the fourth note, are now payees of
all four notes and thus have the ability they lacked in the
previous action, which is to “deem” (as the
contract puts it) the notes to be cancelled. Accordingly,
they believe they are entitled to the remedy of specific
performance, that is, an order requiring Defendant Tak
Investments, LLC to transfer a 27% interest in itself over to
the Plaintiffs. Both sides have moved for summary judgment.

The
operative language is contained within an agreement called
“Final Business Terms Agreement, ” dated April
16, 2007. It provides as follows:

Through the third anniversary of the date of each Investment
Note, the OFTI Group agrees to pay any payments due for
interest or principal required per the terms of the
Investment Notes. . . If such Investment Notes are deemed
cancelled by the OFTI Group after the third anniversary of
the date of the Investment Notes, the OFTI Group shall
receive an undiluted 27% ownership interest of the highest
class in [Tak] Investments . . .

(ECF No. 25-3 at ¶ 2.G.)

ANALYSIS

1. The
LLC Does Not Own Itself.

The
Defendant's first argument is very simple: it argues that
it does not have the ability to convey any interest in itself
to the Plaintiffs, or anyone else for that matter. Only
owners can convey interests, and Tak Investments, LLC - the
only defendant in this action - does not own itself. Instead,
the LLC is owned by Sharad Tak and his wife, and / or Tak
Investments, Inc., none of whom are party to this action.

The
Plaintiffs protest that LLCs have, under state law, all kinds
of rights to convey interests and dispose of property. That,
of course, is true. But none of the statutory provisions
Plaintiffs cite stands for the principle that an LLC may
convey something it does not possess, namely, an ownership
interest in itself. For example, the Plaintiffs cite
a Maryland statute that provides an LLC may purchase, sell,
hold, and pledge “stock or other interests in and
obligations of other corporations . . .” Maryland Code
§4A-203. But the key word, of course, is
“other.” The Maryland code does not provide that
an LLC may issue shares in itself, which is what the
Plaintiffs want. (The Plaintiffs cited Maryland law because
they had been unclear whether the LLC was a Delaware or
Maryland LLC.) The Plaintiffs also argue that Delaware law
allows for assignments of ownership interests as well. But
the provision they cite, 6 Del. C. § 18-702, merely
provides that LLC interests may be assigned, not that the LLC
itself would do the assigning. In fact, the statute suggests
that any assignment would be by the m ember (i.e.,
the owner), not the LLC itself.[1]

This is
not merely an academic problem or an elevation of form over
function; it is a recognition of the realities of ownership.
When part of a company-or anything else, for that
matter-transfers to someone, it is also necessarily
transferred from someone. The percentage of
ownership must always add up to 100%. And so if the company
itself purported to transfer 27% of itself to the Plaintiffs,
from whom would it be taking that share? And on
whose authority? These questions demonstrate the essence of
the problem, which may be summarized succinctly: “A
corporation does not own itself.” Hanley v.
Kusper,61 Ill.2d 452, 462, 337 N.E.2d 1, 7 (Ill. 1975).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It is
true enough that more traditional corporations have the
ability to issue shares in themselves, for example, as part
of employee stock incentive plans. It is also conceivable
that an LLC in some circumstances could transfer part of its
ownership. But those abilities would be products of specific
contractual arrangements (for example, an ESOP, a convertible
bond, or the LLC operating agreement) providing for the
company to issue new shares, shares that would dilute the
existing owners&#39; interests. If the Plaintiffs here had
expected the Defendant to issue new shares in
itself, one would expect their agreement to say so. Instead,
the contract simply provides, in a single sentence, that the
Plaintiffs “shall receive an undiluted 27% ownership
interest.” (ECF No. 25-3 at ¶ 2.G.) Since LLCs
normally do not have “shares” in the same way
corporations do-they function more like partnerships-any
agreement to issue new ownership interests would have been
more specific than the vague “shall receive”
language the parties used. This is confirmed by the fact that
Sharad Tak, the LLC's owner, signed the agreement on his
own behalf. A more reasonable reading of the agreement is
that the parties intended that Sharad Tak would be obligated
to convey any ownership interest, since he was the only owner
of Tak Investments, LLC to sign that agreement. He was the
only party with the ability to convey a 27% share of his
company. Thus, even if an LLC had a theoretical ability to
issue an ownership interest in itself, I ...

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